Europe caps longest stretch of weekly gains since 2006

BLOOMBERG

European stocks posted the sixth consecutive weekly advance, the longest stretch of gains since January 2006, as speculation grew that the worst of the financial crisis has passed.

The Dow Jones STOXX 600 Index rose 4.7 percent to 196.96, the highest level since Feb. 9. The measure has rebounded 25 percent from a 12-year low on March 9 as lenders signaled they made money at the beginning of this year and the US government unveiled plans to purchase as much as US$1 trillion in toxic assets from financial firms.

“The recent positive earnings from major banks like Goldman Sachs, JPMorgan and Citigroup has improved investor optimism that the worst of the banking crisis may be over,” said Joshua Raymond, a London-based market strategist at City Index. “Investors are now looking toward the banks to restore confidence and the results witnessed thus far have gone some way to doing this.”

The VSTOXX Index, which measures the cost of using options as insurance against declines in the Dow Jones Euro STOXX 50 Index, slid to 36.70 this week, the lowest level since Sept. 25. The index reached a record 87.51 on Oct. 16 following the collapse of Lehman Brothers Holdings Inc.

Financial companies are expected to drive an earnings recovery in the US and Europe. While analysts predict overall profits in the Standard & Poor’s 500 Index will drop 15 percent this year before rebounding 24 percent next year, earnings in the STOXX 600 are estimated to grow 20 percent this year and 15 percent next year, according to Bloomberg data.